Email to a friend

Trend toward deepwater drilling likely to continue by David Fuller

Trend toward deepwater drilling likely to continue

This is an informative article by Steven Mufson for the Washington Post. Here is the opening

Willie Sutton robbed banks because that's where the money is. And oil companies venture into deep waters for exploration because that's where the oil is.

That's why -- even though President Obama has imposed a six-month moratorium on deep-water exploration drilling in the Gulf of Mexico -- the oil and gas industry is going to be back. And it's why in other countries, the deep-water search hasn't stopped.

Within five years, global deep-water production is expected to rise by two-thirds, to 10 million barrels a day, according to Cambridge Energy Research Associates. That's equivalent to the amount of crude oil that the world's largest exporter, Saudi Arabia, produces. And in the United States, improved technology for extracting oil from deep water accounted for about 70 percent of the increase in the U.S. Geological Survey's estimates of recoverable U.S. oil reserves in recent years.

Those big stakes explain why the oil industry is worried about Obama's moratorium, which has idled 33 deep-water drilling rigs in the gulf. Interior Secretary Ken Salazar has described the moratorium as hitting "the pause button," but oil service firms -- and Gulf Coast politicians -- want the government to hit the play button again.

Houston-based Diamond Offshore, which owns the world's second-largest fleet of floating drilling rigs, and Hornbeck Offshore Services of New Orleans have asked federal judges to issue temporary restraining orders that would lift Obama's moratorium without waiting for Interior to come up with new regulations. Diamond said the moratorium amounted to an illegal "taking" from the company. Louisiana Gov. Bobby Jindal (R) filed a brief supporting Hornbeck, complaining that the state government "was completely ignored" in the imposition of the moratorium.

However, environmental groups and much of Obama's Democratic base are wary of lifting the moratorium. Michael Brune, executive director of the Sierra Club, said talking about lifting the moratorium while the well is still leaking is like "talking about how to get more kindling" while your "house is engulfed in flames."

David Fuller's view Politically, I can understand why President Obama might wish to maintain his six-month moratorium on offshore drilling until it expires, the BP well has been successfully capped, the oil residue has been largely cleaned up and some new safety regulations for the oil industry are in place. The ban on deep-water drilling would conveniently last until after the November elections. However, it was overturned this afternoon by a New Orleans Federal Judge, although the White House is likely to challenge this ruling.

Meanwhile, uncertainties following BP's accident, including tighter regulation and higher insurance costs, are likely to remain headwinds for the offshore oil industry until all the facts are known. Other influences will be the price of crude oil and the overall strength or weakness of stock markets. My guess is that both crude oil and leading stock markets will be higher near yearend than they are today, although we can expect some volatility.

Choppy stock market action and lingering uncertainties regarding deep-water drilling should provide some opportunities to accumulate these energy stocks at reasonable levels. For conservative investors, my guess is that Royal Dutch Shell (RDSB LN) (weekly & daily), (RDS/A US) (weekly & daily), will benefit at BP's expense over the long term, at least in terms of investor interest while the latter's dividend remains cancelled.

I have included charts for both the London and US listings so that you can see RDS's performance in both GBP and USD (less back history on weekly chart in $). The price performance has been uninspiring but RDS currently pays a dividend of approximately 6%. I would rather hold RDS than a bond and maintain that a longer-term consequence of BP's accident in the Gulf of Mexico will be a somewhat higher floor price for crude oil than would have otherwise occurred.

Registration required

Most Recent Audio: 10 December 2016

Testimonials

Its a service I have used over many many years and have grown to trust. I find the commentary and analysis provided to be a reliable guide to market action.

C.C. 09 September 2016

FTM looks at markets globally and technically; the best.

J.P. 08 September 2016

I find David's and Eoin's analysis is refreshingly different, with it's basis in crowd behaviour combined with a relatively uncomplicated use of charts.

T.K. 30 August 2016

I want to say thanks for all your interesting charts from all over the world. You both give us a fantastic wiew from around the globe! Some examples,Valeant,Kinder Morgan,Orocobre and metals. They have all recently helped me pay my expenses and more.

L.K. 27 July 2016

I have been a subscriber since the 70's.
I have grown with your service and have no hesitation in recommending your service !!!

R.D. 19 June 2016

Experience, relevant data sourcing that is not often though about, consistency using both technical and fundamental inputs, as well as the understanding of market psychology, contrarian behaviour and sentiment.

J.E. 29 May 2016

I'm a long time subscriber and very familiar with the service!

T.M. 15 April 2016

Essential chart library plus interesting thematic comment

N.B. 06 April 2016

Good product, simple as that.

D.S. 05 April 2016

I appreciate David and Eoin's insightful, level-headed commentary.

M.N. 30 March 2016

It's a very time efficient and considered source of financial information.

H.T. 16 March 2016

I have subscribed for many years. I value David's judgement highly - he has made some excellent investment calls and his commentary is often insightful. The Chart library is a particularly useful resource.

A.L. 11 March 2016

Global scope, technical analysis, Fullers verbal.

J.P. 04 February 2016

Very long time subscriber and found service helpful in not missing major trends

S.O. 20 January 2016

I have been a long term satisfied customer myself.

C.B. 11 January 2016

Informative and consistent, good overview

R.M. 06 December 2015

Excellent daily coverage of the markets. The chart library is central to my investing. The Filter function is a gem.

D.B. 02 December 2015

Happily followed for many years

J.D. 24 November 2015

Long term subscriber, very satisified with quality of service

E.M. 21 October 2015

I am an extremely satisfied subscriber. The daily audio is an indispensable part of my day, and the chart library is a very powerful and convenient tool.